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Petitioners’ return was prepared by a certified public
accountant whom they have used for a number of years.
Petitioners were audited with regard to their horse-related
activity for taxable year 1987 and were represented by their
accountant for this audit. In the end, there was no deficiency
for 1987 with respect to the horse-related activity.
Discussion
In the notice of deficiency, respondent disallowed the
claimed loss on the basis that petitioners did not establish that
their horse activity was entered into for profit. Respondent
also determined that petitioners failed to report a capital gain
in the amount of $2,000 from the sales of two horses.
Substantiation is not an issue except for $753, the amount
that petitioners claimed for depreciation of their barn.
Petitioners no longer have documentation for their cost basis of
the barn.
Horse-Related Activity
We must decide whether petitioners’ horse-related activity
was engaged in for profit. Section 183(a) generally provides
that if an activity engaged in by an individual is not entered
into for profit, no deduction attributable to the activity shall
be allowed, except as otherwise provided in section 183(b).9 An
9 Sec. 183(b) allows deductions for ordinary and necessary
expenses arising from an activity not engaged in for profit only
to the extent of gross income from the activity, less the amount
of those deductions which are allowable regardless of whether
the activity is engaged in for profit.
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